DOING GOOD BUSINESS AND THE SUSTAINABILITY CHALLENGE - SPONSORED BY: A. T. KEARNEY, BANK OF AMERICA, ORANGE, JONES LANG LASALLE ...
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Doing good Business and the sustainability challenge Sponsored by: A. T. Kearney, Bank of America, Orange, Jones Lang LaSalle, PricewaterhouseCoopers, SAP and ExxonMobil, SunGard
Doing good
Business and the sustainability challenge
Preface
Doing good: Business and the sustainability challenge ● to supplement the survey results, we also
is an Economist Intelligence Unit report that conducted in-depth interviews with 28 executives,
investigates the impact of sustainability on business including CEOs and sustainability chiefs, as well
today. Lead sponsors of the programme include as other leading experts from international
A. T. Kearney, Bank of America, Orange, Jones Lang organisations, consultancies, non-governmental
LaSalle, PricewaterhouseCoopers and SAP, along with organisations and academia. A full list of
supporting sponsors ExxonMobil and SunGard. interviewees is detailed on the next page;
The Economist Intelligence Unit bears sole ● finally, an extensive programme of desk research
responsibility for the content of this report. Our was conducted, including a wide-ranging literature
editorial team executed the online survey, conducted review.
the interviews and wrote the report. The findings and Dr Paul Kielstra was the author of the report and
views expressed within do not necessarily reflect the Gareth Lofthouse and James Watson were the editors.
views of the sponsors. Sarah Murray also contributed. We would like to thank
Our research draws on three main initiatives: all the executives who participated in the survey and
● we conducted a wide-ranging global survey interviews for their time and insights.
of senior executives from around the world in
September and October 2007. In total, more than February 2008
1,200 executives, half of them from the C-suite and
26% of them CEOs, took part. They represented a
cross-section of industries and a range of company
sizes;
© The Economist Intelligence Unit 2008 1Doing good
Business and the sustainability challenge
Interviewees
(Listed alphabetically by organisation name)
Dr Hameed Bhombal, CTO, President of Corporate Jane Nelson, Director of the CSR Initiative,
Technology Strategy and Services, Aditya Birla Harvard’s Kennedy School of Government
Roland Waardenburg, Director of Corporate Social Adrian Hodges, Managing Director, International
Responsibility, Ahold Business Leaders Forum
Edward Bickham, Executive Vice President, External Affairs, Francesca DeBiase, VP, Worldwide Supply Chain
Anglo American Management, McDonald’s
Michael Prideaux, Director, Corporate and Bob Langert, VP, Corporate Social Responsibility,
Regulatory Affairs, BAT McDonald’s
Professor Pan Jiahua, Executive Director, Research Bart Alexander, Global VP, Alcohol Policy and Corporate
Centre for Sustainable Development, Chinese Academy Responsibility, MolsonCoors
of Social Sciences Jing Ulrich, Chairman, Chinese Equities, JP Morgan
Dr Gail Kendall, Director, Group Environmental Affairs, Daniel Vasella, CEO, Novartis
CLP Group
Pierre Poret, Head, Investment Division, OECD
Carl Kitchen, Public Affairs Manager, CLP Group
Ivo Menzinger, Group Head of Sustainability and Emerging
Ed Potter, Director of Global Workplace Rights, Coca-Cola Risk Management, Swiss Re
Dr James Suzman, Director of Corporate Citizenship, John Elkington, Founder and Chief Entrepreneur,
De Beers SustainAbility
Tod Arbogast, Director of Sustainable Business, Dell Alan Rosling, Executive Director and Board Member,
Doug Cahn, Chairman, Fair Factories Clearinghouse Tata Group
Tony Juniper, Executive Director, Friends of the Earth UK Georg Kell, Executive Director, United Nations
Mark Kramer, Founder, FSG Social Impact Advisors, and Global Compact
Senior Fellow, Harvard’s Kennedy School of Government Bjorn Stigson, President, World Business Council for
Julian Garrido, CFO, GE Latin America Sustainable Development
Jill Brady, General Counsel, Virgin Atlantic
Doing good: Business and the sustainability challenge Participants represented a range of company sizes, with
is an Economist Intelligence Unit research programme 53% from firms with at least US$500m in revenue; 22%
that investigates the impact of sustainability on business were from firms with revenue of at least US$5bn. The full
today. A total of 1,254 executives around the world par- breakdown of survey respondents can be found in the
ticipated in the survey. Half of all respondents were from appendix, starting on page 46.
the C-suite. Roughly 27% of respondents were based in
Asia, 33% in western and eastern Europe, 33% in North Please note that not all figures quoted correlate precisely
and Latin America, and 7% in the Middle East and Africa. with the charts provided, typically because of rounding.
2 © The Economist Intelligence Unit 2008Doing good
Business and the sustainability challenge
Contents
Executive summary 4
Doing good: Ten lessons for corporate leaders
Chapter 1 Sustainability: What is it, why now, and why us? 8
Corporate leaders are now spending more time dealing with issues
relating to sustainability and corporate social responsibility. Climate
change is one of several catalysts, along with concerns about energy
security and booming megacities—not to mention globalisation.
Case study The Quakers, social responsibility and profit 11
Chapter 2 Priorities and drivers 13
In line with wide-ranging concerns about climate change, more firms
are focusing their efforts on environmental issues than anything else.
Influences vary around the world, but companies worry most about what
customers and governments think—and what rivals do.
Case study Business and NGOs: A changing relationship 18
Chapter 3 How is business doing? 20
Few companies are bullish about their sustainability performance. For
most, it is a new challenge, with little in the way of best practice yet
established. Supply chains and sustainability reporting, amongst other
things, will be bending minds as executives pick up their efforts on this.
Case study Learning to share: The Fair Factories Clearinghouse 26
Case study Anglo American’s approach to social impact 30
Chapter 4 Does sustainability pay? 31
A new opportunity that can drive business growth? Or yet another drag
on the bottom line? Businesses grappling with sustainability issues are
starting to find some unexpected results.
Case study View from 30,000 ft: Virgin Atlantic 38
Chapter 5 What will deliver: Markets or regulation? 39
Can markets alone deal with these issues, or do governments need
to step in?
Conclusion 42
Appendix: Survey results 43
© The Economist Intelligence Unit 2008 3Doing good
Business and the sustainability challenge
Executive summary
Being a good corporate citizen has never been beyond internal operations to encompass their supply
so challenging. Companies have long been chains. In all, less than one in three executives (29%)
under public scrutiny for practices ranging from say their company has a coherent strategy that covers
recruitment to workplace safety, from attitudes to the whole business and its supply chain. Uncertainty
overseas investment to environmental pollution. also lingers as to whether sustainability can be seen as
The emergence of climate change as a mainstream an opportunity, or if it is merely another drag on the
political issue, however, has served to drive home the bottom line.
breadth of ethical issues with which firms must now To investigate this, and to assess the impact of
grapple. The business—and societal—implications of sustainability on business today, the Economist
how companies address these are so far reaching that Intelligence Unit drew on a wide-ranging survey
a new area of management practice has come into of over 1,200 executives worldwide, along with
being to manage them, known by many as “corporate numerous in-depth interviews with leaders of
sustainability”. businesses and non-governmental organisations
Accordingly, grasping the nature and scope of the (NGOs) as well as other sustainability experts. Other
sustainability challenge—as well as best practice in key findings from the study include the following:
addressing the attendant opportunities and risks—is
of immense importance to the corporate community. Business knows that it needs to raise its
However, this report suggests that companies are at game… Out of a list of 16 sustainability policies,
an early stage in developing such an understanding. encompassing issues ranging from energy
While 53% of firms worldwide surveyed by the consumption and carbon emissions to diversity and
Economist Intelligence Unit claim to have a coherent governance, companies surveyed for this report had
sustainability policy, only half of these extend this implemented an average of just 4.8 globally. Quantity
Defining sustainability and other resources on which the company involved
depends for its long-term health. Sustainability is the
result of having such sustainable policies and processes,
and aligning them so that goals in one area are not com-
According to Timothy O’Riordan, Emeritus Professor at promised in favour of those in another. This is really just
the School of Environmental Sciences, University of East an elaboration of the Bruntland Commission definition,
Anglia, defining sustainability is like “exploration into which posits that sustainable development is that which
a tangled conceptual jungle where watchful eyes lurk at “meets the needs of the present without compromis-
every bend”. The number of definitions available, how- ing the ability of future generations to meet their own
ever, gives each publication the freedom to advance its needs”. Obviously, the practical implementation of the
own, as a courtesy to readers if nothing else. This study definition will vary across industries, geographies and job
has called sustainable those policies and processes which functions, because at the core sustainability is an under-
enhance the financial, environmental, societal, human, lying approach rather than a definitive list of activities.
4 © The Economist Intelligence Unit 2008Doing good
Business and the sustainability challenge
aside, many executives also rated the quality of chains. “This is not charity: it is pure business. We
their company’s efforts poorly. More respondents create a better long-term relationship with suppliers,
say that their organisation’s performance has been have better products, and better control over volume
poor in individual areas of sustainability, than those and price,” says Roland Waardenburg, Director of
who believe their firms are doing well. Just 6% rate Corporate Social Responsibility at Ahold.
their companies as outstanding when it comes to the
reduction of greenhouse gases, waste and pollution, Many companies lack clear leadership on
compared with 15% who describe themselves as sustainability. Tony Juniper, an Executive Director
poor. One exception is communication: talking about at Friends of the Earth, who has seen numerous
whatever programmes they have in place is something corporate sustainability programmes, says “senior
most companies feel they do well. management or chief executive buy-in to the agenda
is absolutely crucial” for real change to occur.
…but is often confused by such new and poorly Most firms understand that senior leadership is
defined demands. Companies are still figuring out critical here: one-third of surveyed companies place
what sustainability means for their business and how responsibility for their sustainability performance
to implement it. The research shows that companies directly with the CEO—and a further 26% place it with
have difficulty devising useful targets, and aligning the board. But at many other firms sustainability
social and environmental objectives with financial responsibilities are dispersed throughout the
ones. Moreover, management frequently lacks an organisation, and 11% of companies admit to having
understanding of what sustainable development nobody in charge. “Sustainability needs a strong seat
means for the organisation. No small factor here is at the table like procurement and finance,” argues
a lack of consensus on what sustainability entails. Francesca DeBiase, VP for Worldwide Supply Chain
“Sustainability, at different times, can mean all Management at McDonald’s. “It is the way everyone
things to all men,” says Dr James Suzman, Director of should be thinking.”
Corporate Citizenship at De Beers.
Sustainability reporting needs more work. Although
The supply chain is the weakest link. Extending companies rate their performance on communication
sustainability policy to suppliers is the area where highly, efforts regarding formal reporting are less
companies gave themselves the worst marks: about advanced. Only 22% of executives say their firms
one-fifth say their companies have performed poorly have formal Triple Bottom Line reporting, although
in setting stronger supplier standards on both a further 40% say they will adopt it within five years.
environmental and human rights issues. About the There is, in Mr Juniper’s words, “a huge level of
same proportion have only implemented supplier disengagement” from sustainability reporting.
controls in the last five years. The problem is not
new, and examples of disastrous consequences Sustainability does pay. Most executives (57%) say
from socially or environmentally damaging supply that the benefits of pursuing sustainable practices
chains abound. “Every CEO should be asking, after a outweigh the costs, although well over eight out
decade of work in implementing codes of conduct, of ten expect any change to profits to be small.
‘Why haven’t we fixed the problem?’” argues Doug Specifically, sustainable practices can help reduce
Cahn, Chairman of the Fair Factories Clearinghouse. costs (particularly energy expenditure), open up new
Besides, firms can gain from improving their supply markets and improve the company’s reputation. Part
© The Economist Intelligence Unit 2008 5Doing good
Business and the sustainability challenge
of this involves a shift away from defensive behaviour and environmental challenges. Another 50% say
towards more active exploration of the opportunities that voluntary action is generally more effective,
sustainability can present. Some of these gains can but that additional regulation may be required in
be dramatic. GE’s line of Ecomagination products some areas. However, this openness to new rules is
added US$12bn to its bottom line in 2006. The costs combined with the desire for clearer guidance about
of implementation, however, are not to be ignored: what government expects from business. Nearly two-
respondents view this as the most formidable barrier thirds (62%) of respondents agree that “uncertainty
to expanding sustainability practices. over government policy is making it difficult to plan
strategies for corporate sustainability”. The irony is
There is a link between corporate sustainability that politicians appear to be looking to business to
and strong share price performance. In our survey, deliver the goods. “Governments are proponents of
companies with the highest share price growth market solutions, and business is saying we want some
over the past three years paid more attention to regulation,” notes Bjorn Stigson, President of the
sustainability issues, while those with the worst World Business Council for Sustainable Development.
performance tended to do less. Causality is difficult to “From the outside, it can look pretty confusing.”
establish, but the link appears clear: the companies The social and environmental issues facing
that rated their efforts most highly over this time companies today are not going away—and are likely
period saw annual profit increases of 16% and share to involve a redefining of relations between business
price growth of 45%, whereas those that ranked and society. This often involves fundamental political
themselves worst reported growth of 7% and 12% and even moral questions. A good sustainability policy
respectively. In general, these high-performing needs to know when, and why, to say “no” as well as
companies put a much greater emphasis on social and “yes” to stakeholders’ innumerable demands. “If you
environmental considerations at board level, while don’t know your magnetic north, then the compass is
the poorly performing firms are far more likely to have useless,” says Mr Stigson.
nobody in charge of sustainability issues. Companies need to adjust by integrating best
practices in these fields into their operations and by
Business leaders are open to more regulation on joining the broader debate on the responsibilities of
social and environmental issues. Executives in our business, government and individuals in addressing
surveys are often opposed to increased regulation. these challenges. If firms do not get involved in the
Not here. Forty percent of those in our survey believe latter, it will hurt their own finances, as well as the
additional regulation is necessary to tackle social environment and social conditions worldwide.
6 © The Economist Intelligence Unit 2008Doing good
Business and the sustainability challenge
companies are integrating their supply
Doing good: Ten lessons for corporate leaders chains into their sustainability policies. Just
as with the financial side of operations, poor
The experience of companies in the centrating on what an organisation does performance by suppliers here can harm a
sustainability field yields some important best. Immediate demands might inevitably company’s sustainability record—and very
insights. draw you into areas a business does not quickly its public reputation—while a sus-
know thoroughly, but it is wise for firms to tainable supply chain can greatly enhance
1. Work smart, not hard. Sustainability does consider where they can make the greatest an organisation’s ability to deliver its own
not involve a simple checklist of activities, impact. A consultant, rather than planting high social and environmental performance.
but an alignment of social, environmental trees, would probably do better to help an
and financial goals. However, in our survey, organisation already doing that to run more 8. Monitor and report. “When you say you
the companies pursuing the largest number efficiently. will do something and you communicate
of sustainability-related policies were not it, you ought to measure it,” says Daniel
necessarily those who ranked their perform- 5. Ask not just what your company can do Vasella of Novartis. Finding information and
ance in this area highest. Quality counts. for sustainability; ask what sustainability metrics is not easy, but too few companies
can do for your company. Sustainability are even trying. Existing reporting guide-
2. Know thyself. Successful sustainability need not be a burdensome imposition lines are not definitive solutions, but they
programmes are based on companies figur- from outside. Taking account of social and do provide a place to start.
ing out what they think is right and acting environmental issues can lead to extensive
accordingly, rather than running after innovation that cuts costs in the long run. 9. Integrate. Sustainability will not work
(often shifting) public demands. Distilling At its best, it can open the way to new mar- as an add-on. It needs to be integrated into
corporate values is an essential first step. As ket opportunities and prepare the company corporate structures and processes. Such
Bjorn Stigson, President of the World Busi- for the growing risks in these areas. Ivo change can be hard to manage, but is a key
ness Council for Sustainable Development, Menzinger, Group Head of Sustainability element of getting this right. Although some
says, “If you don’t know your magnetic and Emerging Risk Management at Swiss problems are sufficiently novel that new
north, then the compass is useless.” A good Re, stresses that firms “need to approach procedures and tools will be necessary to do
sustainability policy needs to know when to sustainability from a business angle … there so, companies should not forget traditional
say “no” to campaigners. are environmental and social trends that techniques of encouraging positive behav-
will be relevant”. iour. Mark Kramer, Founder of FSG Social
3. Know thy impact. A good assessment of Impact Advisors, explains: “Until it affects
what sustainability issues a company should 6. Have clear leadership and board-level somebody’s compensation and performance
be addressing requires an accurate idea of support. Sustainability will not just hap- reviews, it won’t appear as a serious priority
how company activities are affecting those pen. Success in these areas requires that for middle management.”
around it. These need not be negative. somebody be responsible for sustainability
Moreover, such analysis should include all issues. Moreover, wherever that responsi- 10. Engage. Sustainability is about the
aspects of the Triple Bottom Line—environ- bility is placed in the corporate structure, relationship of business to other elements
mental, social and financial. Too often com- environmental and social priorities must of society. This means that a successful
panies forget the last, but as Jane Nelson, have unequivocal support from the board, company will frequently cooperate with a
Director of the CSR Initiative at Harvard’s CEO and other senior management. Roland range of stakeholders, including NGOs, that
Kennedy School of Government, points out, Waardenburg, Director of Corporate Social might on other occasions campaign against
“the greatest business contribution to soci- Responsibility at Ahold, notes that without it. It also means engaging in public debates
ety is creating wealth”. such back-up from his CEO, “I wouldn’t do about the appropriate content and limits of
my job, because it wouldn’t make sense any corporate social and environmental poli-
4. Focus on your core strengths. Just as more.” cies. This may not always be comfortable,
with the financial side of company opera- but it will contribute both to the success of
tions, good performance comes from con- 7. Remember your supply chain. Too few business and of the sustainability agenda.
© The Economist Intelligence Unit 2008 7Doing good
Business and the sustainability challenge
Chapter 1:
Sustainability: What is it, why now, and why us?
T
Key points hree seemingly unconnected news stories lists include financial, environmental and social
appeared towards the end of 2007: a large sustainability. The OECD Guidelines for Multinational
● There is a general
sense of confusion multinational clothing company faced criticism Enterprises, a useful effort to provide advice on
about the definition for deaths at a supplier factory in the developing state-of-the art best practice in this field, focuses on
of sustainability.
world; a major oil company’s presence in a country Disclosure, Employment and Industrial Relations,
It means different
things to different known for human rights abuses came under the Environment, Combating Bribery, Consumer Interests,
firms and varies spotlight after another military crackdown on dissent; Science and Technology, Competition, and Taxation
across industries and
regions and Al Gore and the Intergovernmental Panel on and has provisions on general policies in such areas as
Climate Change (IPCC) won the Nobel prize for their human rights and supply chain management. The UN
● Climate change
is the key concern efforts to disseminate knowledge about climate Commission on Sustainable Development identifies
today, but the change, while the US Congress debated legislation over 40 relevant issues, including such disparate areas
underlying driver
is the changing regulating greenhouse gas emissions. as “Mountains” and “Health”. Ed Potter, Director of
roles of business, Although distinct issues, all are part of a multi- Global Workplace Rights for Coca-Cola, notes that at
governments and
faceted challenge that companies are approaching the theoretical level “sustainability is unbounded”. Dr
other stakeholders
in the wake of with increasing seriousness—sustainability. Georg James Suzman, Director of Corporate Citizenship at De
globalisation Kell, Executive Director of the United Nations Global Beers, agrees: “Sustainability at different times can
Compact, a multi-stakeholder, corporate responsibility mean all things to all men.” In practice, it seems liable
initiative, describes interest in the field as being to mean anything that a business affects, or that
on a “total upswing”. It is a view that executives affects a business, that is not purely financial.
interviewed for this report consistently echo. A better approach than making lists is to examine
As will be seen, however, companies are often the ideas behind the terminology. Jane Nelson,
bewildered in their response to these issues. That Director of the CSR Initiative at Harvard’s Kennedy
confusion is understandable when something as School of Government, explains that part of the
basic as what to call the challenge sparks debate. problem is historical. “You are getting convergence
“Sustainability”, “sustainable development”, of similar but somewhat disparate fields,” she says.
“corporate social responsibility” (CSR), “corporate Sustainability or sustainable development started
responsibility”, and even old-fashioned “corporate out as a largely environmental concern, which has
citizenship” are all terms used, often interchangeably, increasingly embraced both economic and social
with different parts of the world exhibiting their own dimensions, whereas the origins of CSR, especially in
preferences. CSR has fallen out of favour among some the United States, are in corporate philanthropy. Both
Europeans because of associations with previous spread to encompass the other and more besides. The
failures, whereas in parts of the US “sustainability” boundaries, however, remain fuzzy. “Many companies
has anti-corporate connotations. have a sustainable development or environment,
For companies, the specific content of the health and safety function and a CSR function,” Ms
term—this study uses “sustainability” without any Nelson notes.
anti-business intent—is even more daunting. Most An early, oft-used definition for sustainability
8 © The Economist Intelligence Unit 2008Doing good
Business and the sustainability challenge
comes from the Report of the World Commission on from sustainability policies relate to improved
the Environment and Development, the Brundtland business outcomes: the ability to attract and retain
Commission: “Sustainable development is customers (named by 37% of respondents) and
development that meets the needs of the present improved shareholder value (34%). The third was
without compromising the ability of future straightforward increased profit (31%).
generations to meet their own needs.” The original
focus was on the environment: development that Time to care
destroyed or exhausted essential natural resources Sustainability may have a long history, but why is the
was inappropriate. Bjorn Stigson, President of the concept gaining traction in boardrooms now? The
World Business Council for Sustainable Development immediate impetus is closely tied to specific worries
(WBCSD), explains that in the late 1990s the concept over global warming. John Elkington, Founder and
of sustainability started to include corporate social Chief Entrepreneur of the consultancy SustainAbility,
responsibility, including governance in the wake of and coiner of the term “Triple Bottom Line”, notes
scandals such as Enron’s. The thinking, however, that interest in this area comes in waves—this,
remained consistent. Just as behaviour that destroys he says, is the fourth since the 1960s. He sees the
the physical environment on which business relies is particular concerns driving interest as energy security,
unsustainable, so too are activities that tear at social climate change and the growth of megacities. The
structures and stakeholder relationships equally
essential for long-term survival. What are the biggest benefits that your organisation expects to
CSR’s evolution was different. Adrian Hodges, derive from adopting sustainable practices beyond those of
compliance (if any)? Please select up to three items.
Managing Director of the International Business (% respondents)
Leaders Forum, a group working to enhance business’s Ability to attract new customer base/retain existing one
contribution to sustainable development, argues 37
Improved shareholder value
that corporate involvement in the community some 34
20 years ago amounted mostly to philanthropy. Increased profitability
31
“The main driver used to be the personal interests Ability to identify and manage reputational risks
29
of the chairman or, more often, of the chairman’s
Better quality products and processes
wife.” From there, CSR “has moved through a long 28
Ability to attract best quality employees
continuum to where today leading companies are 26
looking at aligning business strategy with societal Improved relations with regulators/legislators making it easier to operate
19
needs and working hard to eliminate negative Greater attractiveness to investors as a whole
operational impacts.” This approach, which now 17
Networking with NGOs, governments, international organisations
includes environmental responsibility, helps with will create links helpful in addressing other issues
12
stakeholder and risk management, as well as the
Reduced exposure to targeted taxes/regulatory load
search for new business opportunities and competitive 10
Ability to be listed on ethical/low carbon indices
advantage. 3
Mr Hodges and Mr Stigson both present this history Other
1
in a way that emphasizes the element of enlightened No benefit expected beyond compliance with regulation
self-interest in sustainability. This certainly has 6
We are not adopting sustainable practices
some appeal to modern business. For example, the 4
two most frequently cited benefits that firms expect Source: Economist Intelligence Unit survey, October 2007.
© The Economist Intelligence Unit 2008 9Doing good
Business and the sustainability challenge
“[CSR] has moved through a long first two are related, and have the proximate cause. For decades now, globalisation
continuum to where today leading clearly become greater political and trade liberalisation have changed the relative
companies are looking at aligning and popular concerns in the wake positions of companies, governments and other
business strategy with societal of extreme weather events and the stakeholders in society. Today’s sustainability agenda
needs.” release in 2007 of the IPCC report, is a continuation of the ongoing attempt to redefine
Adrian Hodges, Managing Director of the which indicated a very broad the roles of each to address the challenges facing
International Business Leaders Forum scientific consensus that humans societies (see box Globalisation and sustainability).
are causing climate change and
that this is likely to have a serious impact on the Business and morality
planet unless action is taken. Business is not blind to These issues are often political, and ultimately
the implications. According to our survey, the leading complex moral ones, such as what companies’ duties
area of activity in the past five years, and one of the are to the communities in which they operate. For this
most widespread priorities for the near future, is reason, most executives interviewed for this report
energy use reduction. Sometimes the change is more felt that their sustainability strategy has to start with
dramatic: Hurricane Katrina, for example, sparked a principle, not profit. “CSR means different things to
thoroughgoing change in how Wal-Mart approaches different people, depending on, for example, culture,
sustainability, particularly in environmental areas, religion, geographic location, or position in a value/
but also in social ones. supply chain,” says Mr Stigson. “In considering what
Climate change, although very important to the you should do as a company, it really comes down
current interest in sustainability, is in many ways just to your own values. If you don’t know your magnetic
Globalisation and link between liberalisation, global important and yet more difficult to apply
integration and growing “expectations consistently high ethical standards to
sustainability about business doing more or differently”. business. Different markets give rise to
The issue was not just about increased different responsibilities and expectations.
Several executives interviewed for this business influence in the wake of Mr Bickham notes that in Anglo American’s
report point to globalisation as the reason globalisation, but also a simultaneous British operations, “apart from being
why sustainability has become an decline of state power. “A lot of business environmentally responsible and treating
increasingly important issue for businesses. risks and opportunities exist because of employees properly, our contribution is
Edward Bickham, Executive Vice President of governance gaps or failures or because of largely met by paying and treating our
External Affairs at Anglo American, thinks changing boundaries and expectations of people decently, investing and paying our
the issue goes back to the fall of the Berlin government roles,” says Jane Nelson of taxes.” He believes their responsibilities are
Wall and the disappearance of a mainstream Harvard’s Kennedy School of Government. different in the poorer countries, however,
alternative to capitalism. As globalisation “So many of these issues are trans-boundary where the capacity of the government to
accelerated, opportunities for business and would have been the role of government deliver sustainable outcomes is low, and
increased—but so did worries that in the past. This is not to suggest that consequently the requirements placed on
companies need to be more accountable. business should be taking responsibility for business are much greater. Stakeholders are
Dr James Suzman of De Beers dates a all these issues, but in today’s increasingly knocking on business’s door not only for the
broader sociological shift to the same complex and interdependent global problems firms might be causing, but also
period, which resulted in companies having economy there is a need to re-negotiate because companies may simply be the only
to meet new obligations in order to operate boundaries and burden-sharing between the ones capable of solving other pressing social
on a global basis. Georg Kell of the United public and private sector.” and environmental difficulties for which
Nations Global Compact also sees a strong Globalisation has made it both more they bear no direct responsibility.
10 © The Economist Intelligence Unit 2008Doing good
Business and the sustainability challenge
north, then the compass is useless.” Daniel Vasella everything starts with setting the right values.
of Novartis, believes that the essential first step in These days it is hard to escape the need for
this area is to “explore what your beliefs are and to companies to crystallise their thinking on values.
act in accordance with them”. Julian Garrido, CFO at Michael Prideaux, Director for Corporate and
GE Latin America, and Bob Langert, VP for Corporate Regulatory Affairs at British American Tobacco
Social Responsibility at McDonald’s, also insist that (BAT), the world’s second-largest tobacco company,
Case study housing, gardens, sports facilities and Saturday half-
day holidays. In the early 1900s, they and the Rown-
The Quakers, social responsibility
trees were among the first to set up worker pensions.
and profit Quaker employers might in retrospect seem at times
highly patronising, but, compared to the alternative,
that was a small price for contemporary workers to pay.
The correct conduct of businesspeople in society, and the
link between social responsibility and profit, are not new By the standards of today, did this eccentric behaviour
questions. The case of the Religious Society of Friends— have any impact on the financial bottom line? As with
the Quakers—provides interesting insights into modern modern sustainability, it certainly did not hurt. Although
sustainability questions. Quakers in Britain never numbered more than 60,000,
As a group, the Quakers go back to the mid-17th Mr Walvin notes that by 1900 it would have been easy
century. Originally blocked from entering the professions, to organise much of material life “around the products
many went into trade and later manufacturing. Their and services of a number of Quaker commercial enter-
dress, language and close links with each other certainly prises. Financial transactions could have been conducted
set them apart within business and society, but so too through a number of Quaker banks (most notably Lloyds
did a number of traits, based on their beliefs, that would or Barclays), confectionery was to be had from a range of
hearten the modern corporate social responsibility (CSR) Quaker manufacturers (Huntley and Palmer, Carrs, Rown-
executive. tree, Fry or Cadbury), and shoes could be purchased from
● They were known, even by critics, for exemplary hon- Clarks.” These were merely the most noted Quaker firms,
esty. James Walvin, a leading historian, concludes which had an influence on British business completely
in The Quakers: Money and Morals, “Their produce out of proportion to the group’s size.
was sound, their prices fair, their services honest, As with those firms that best exemplify sustainability
their word good and their agreements honourable.” today, the Quakers were not ethical in order to make
Although important today, such behaviour was even money, but they did what they saw as right and, either
more so in previous centuries when bank regulation, despite or because of this, grew rich. The irony is that
for example, was poor at best, and adulterated food- their money made them thoroughly uncomfortable—their
stuffs all too common. precepts encouraged plainness, not luxury. As a result,
● Quakers avoided even highly profitable sectors that even more wealth made its way to helping society.
they deemed immoral, such as the arms industry and For example, Quaker businessmen were among the
the slave trade—including, for a time, the closely asso- biggest backers of the anti-slavery movement—with
ciated sugar trade. both time and money—and for the past century Joseph
● They treated their employees very well by the stand- Rowntree’s three independent charitable trusts have been
ards of the day, both because it was the right thing campaigning on a series of social issues worldwide.
to do and because they thought it likely to increase In the long term, honesty, integrity and loyalty to
productivity. The Cadburys, at their Bournville facility, one’s values are clearly no obstacles to financial success—
in the second half of the 19th century provided decent whether you want it or not.
© The Economist Intelligence Unit 2008 11Doing good
Business and the sustainability challenge
remembers that early on in its efforts in this area, attacked.” Similarly, Mr Langert feels that, although it
“stakeholders were asking us what our business is important to listen to all sides on tough issues, “it is
principles were. It hadn’t occurred to us that people very difficult to satisfy all the constituents. We want to
would want that, but … we went out and developed feel that we are doing the right thing.”
them.” Inevitable disagreements over moral issues
Morality, philosophy and values, however means that “sustainability” is becoming a term
important, cause most businesses to tread warily. like “democracy”—everyone warmly supports the
Some companies can draw on the religious precepts idea, but defines it differently. The contest over
of founders and owners, such as Zoroastrianism content is ongoing and could have profound effects.
at India’s Tata Group, or Quakerism at C&J Clark, Jonathan Porritt, Chairman of the UK’s Sustainable
the British shoe company (see Development Commission—the government’s
“In considering what you should case study The Quakers, social independent watchdog in the area—wrote in a British
do as a company, it really comes responsibility and profit). Mr newspaper, The Guardian, in November 2006 that
down to your own values. If you Hodges cites a study showing that almost by definition arms companies and cigarette-
don’t know your magnetic north, the biggest driver of sustainability makers could not be sustainable. Mr Prideaux notes
then the compass is useless.” among Latin American small and of BAT that “we’re very welcome in mainstream
Bjorn Stigson, President, World Business medium-sized enterprises (SMEs) sustainability and CSR fora”, but the company is
Council for Sustainable Development is the “values of the family member barred from anti-smoking ones. Mr Hodges thinks
who started the business”. Most that ultimately “society will work through what is
modern multinationals, though, avoid a specific faith acceptable and isn’t acceptable. This is a question
or ideology: if discussing religion is problematic for of changing values.” In the past, he adds as an
dinner guests, it can be fatal for sales or recruitment illustration, slavery was considered acceptable.
efforts. The debate over values and what is morally
Trying to rely on some broad sense of popular acceptable may be an uncomfortable one for
morality that will satisfy consumers, however, is business. As Mr Vasella points out, “Something we
also fraught with difficulty. Popular mores can have not been trained to do in business schools
change rapidly and be inconsistent within the same is how to [engage in] dialogue with peoples with
country, let alone around the world. Ms Nelson notes other beliefs.” Too much is at stake, however, not
that “even with the best intentions in the world, to engage. At the very least, companies need to be
companies have fifty different stakeholders telling part of the discussion on how far, if at all, current
them fifty different things”. Mr Vasella believes public concerns about climate change should affect
“one needs to be open, but not run after fashion”. a range of social issues as well. The future of whole
Acting sustainably, he believes, is never easy. “There sectors, which could find their social and legal
are a variety of stakeholders—shareholders, NGOs, licences to operate fading away, may depend on it. So
the media, politicians—they all have an agenda. too may the solution of many of the world’s pressing
These agendas are not identical, and are sometimes environmental and social problems. As Tony Juniper,
contradictory. You enter into conflict whatever you Executive Director of the environmental NGO Friends
do. Unless you stand behind what you really believe, of the Earth UK, notes: “We need business to be
you will not be sustainable because you will be engaged in this in a positive way.”
12 © The Economist Intelligence Unit 2008Doing good
Business and the sustainability challenge
Chapter 2
Priorities and drivers
C
ompanies are not philosophical academies by sector. Respondents from the construction Key points
but practical enterprises. How is the push and agricultural industries, for example, gave a
● Environmentally
towards sustainability changing the way they higher priority than the average to every one of focused actions
do business? the sustainability issues listed. Respondents in the account for the bulk of
Overall, business is looking at sustainability latter were particularly concerned about local affairs, companies’ activities
challenges across the board, rather than focusing whether social (68% ranked it an important priority) ● Global guidelines
may be set, but how
narrowly. Our survey asked respondents to rank or environmental (67%). Beyond the general, certain these translate into
the importance of a range of sustainability-related individual sectors also have specific concerns. Energy local initiatives will
vary widely
goals at their firms. Around one-half considered the industry respondents are far more likely to place
following activities as very important: improving the importance on issues such as energy efficiency (67%), ● Customers and
governments are
environmental footprint of products (57%); improving greenhouse gas emission reduction (63%), and two key influencers
energy efficiency (52%); developing new products to even—given their frequent need to obtain supplies in globally. Much less
consideration is given
help reduce social or environmental problems (51%); poorer countries—helping governments to promote
to developing-world
and improving the impact of operations on surrounding sustainable development in countries of operation customers
local communities and environments (both 50%). At (56% compared with an average of 39%). Similarly,
the top of the agenda, however, is communicating this retailers are much more concerned than average with
performance to investors and stakeholders (61%), an environmental and human rights issues in supply
issue which is discussed later in this report. chains (54% for both), which can directly affect sales,
It is equally interesting to note which activities are and less so with developing new products (35%), a task
ranked by executives as being of lower importance. they usually leave to others.
Surprisingly, only around 40% of respondents see Such diversity is hardly surprising. Ivo Menzinger,
greenhouse gas reduction as an important priority. Group Head of Sustainability and Emerging Risk
Given the interest of the public and politicians, Management at Swiss Re, notes that the implications
businesses should almost certainly put more focus of these issues will obviously vary by industry, with
here. Says Roland Waardenburg, Director of Corporate an insurance company and a manufacturer of wind
Social Responsibility at Ahold, “It would be wise to turbines seeing different opportunities and risks. The
work on this. In the long term you get penalties if you variations should not, however, obscure the broader
don’t; in the short term you can reduce your costs message of the survey: a large number of companies
while doing the right thing for the environment. across all industries attach importance to a wide-
A perfect example of how profit and planet can go ranging list of sustainability initiatives.
together.” Companies also seem to be focusing on
getting their own houses in order. Supply chain issues Same planet, different perspective
are a less common concern, whether they relate to Different vantage points lead companies to take
the environment (35%) or human rights (34%), a different approaches to sustainability. As Mr Kell
potential blind spot also discussed later. of the Global Compact says, the push for corporate
The practical content of sustainability also varies sustainability is “now truly a global phenomenon”.
© The Economist Intelligence Unit 2008 13Doing good
Business and the sustainability challenge
How much of a priority will the following objectives be within your company over the next five years?
(% respondents, only those selecting “leading priority” or “major priority” are shown)
Leading priority Major priority
Communicating your organisation’s performance on sustainability to investors and stakeholders
24 37
Improving the environmental footprint of existing products/services (eg, use of recycled materials, reducing packaging and waste)
21 36
Developing new products that help reduce or prevent social or environmental problems
20 31
Improving energy efficiency across global operations
19 33
Acting to enhance the impact of the organisation on the communities around operations
15 36
Improving the local environment around operating facilities
14 36
Reducing greenhouse gas emissions and/or waste/pollutants
13 26
Working with governments to promote sustainable development in the countries you operate in
12 27
Implementing stronger controls over suppliers on human rights standards
11 24
Implementing stronger controls over suppliers on environmental standards
9 26
Source: Economist Intelligence Unit survey, October 2007.
That does not mean it is uniform. Instead, local Although other companies are a universal concern,
implementation can make sustainability appear thereafter the picture gets complicated. Companies in
more like a mish-mash of concerns that happen to be Asia-Pacific are more influenced by policymakers than
headed in the same direction. any other stakeholders and also than respondents
Values and cultural norms vary from region to from elsewhere. Quite simply, the government is
region, sometimes even between or within countries. often the most active player in this region. Speaking
So do the drivers of sustainability. Our survey asked about China, Jing Ulrich, Chairman of Chinese
respondents to name the three stakeholders that would Equities at JP Morgan, says that “thus far the state
have the biggest effect on their sustainability policies. is leading sustainability efforts”. Government has
Worldwide, government policymakers, customers and intervened to close some of the worst polluters and
competitors all featured, but with notable differences to designate several larger firms as industry leaders.
in emphasis (see chart on next page). These leaders have been rewarded with access to
Competitors are a broadly shared concern, and capital and state assets, “but in return have greater
the most pressing in North America. Mark Kramer, responsibilities in terms of best practice,” says Ms
Founder of FSG Social Impact Advisors, a non-profit Ulrich. Dr Hameed Bhombal, CTO and President of
organisation working with corporations and other Corporate Technology Strategy and Services at Aditya
stakeholders in this field, explains that existing Birla, one of India’s largest conglomerates, also
sustainability efforts have changed the playing field: notes that the environmental regulations he faces are
“It used to be easy to say that you can’t do anything tightening surprisingly quickly. As the figures show,
because of competitive pressures. You can no longer consumers are not irrelevant in Asia either, although
argue that it is impossible for business to do this developing-world customers are generally given less
because many have.” consideration than those in the developed world. Even
14 © The Economist Intelligence Unit 2008Doing good
Business and the sustainability challenge
in China, Professor Pan Jiahua, an environmentalist Which of the following will have the greatest influence over your
sustainability strategy over the next five years?
and Executive Director of the Research Centre for (% respondents)
Sustainable Development of the Chinese Academy All customers Competitors
of Social Sciences, notes that domestic pressure on Developed-world customers Developing-world customers
Government policymakers
companies is seeing “a much, much faster change World
than expected. The general public seem to be 46
36
empowered to report to the authorities. Companies 46
40
seem to care more about their social images.” 15
Nevertheless, the key concern remains the state. Western Europe
56
In western Europe, meanwhile, consumers are seen 49
as the most powerful stakeholders of all in driving 37
41
sustainability concerns. Mr Waardenburg of Ahold, for 14
example, reports that his company usually acts ahead North America
44
of any new regulations. To help the supermarket chain 37
41
set its specific sustainability priorities, it consults 45
11
customer opinion broadly. Francesca DeBiase, VP for
Worldwide Supply Chain Management at McDonald’s, Asia-Pacific
46
says that her company did a similar exercise in Europe, 32
51
which it is now expanding to other regions. “It is fair 41
18
to say that Europe leads the way in the sustainability
Source: Economist Intelligence Unit survey, October 2007.
discussion. This is simply because the European
public, including NGOs, the government and the
media, is more sensitive to sustainability and, in
general, to a company’s inter-linkage with society.” developing-world consumers among their top three
Arguably, consumer behaviour and government influences.
action usually arise, directly or indirectly, out of If companies worldwide were facing varying
popular opinion, whether exercised through the degrees of pressure from governments, consumers
marketplace or electoral choices. The relatively and competitors, the results might not be that
small direct impact attributed to the media and NGOs different. Complicating matters is that popular
on companies (cited by 20% and 13% respectively opinion varies by region. Even on an issue where
overall) is on the surface a surprise. Their undoubted agreement is growing, such as climate change, Mr
influence comes through their effect on consumers, Stigson of WBCSD notes that, in very broad brush
voters and regulators (see case study Business and strokes, Americans are more
NGOs: A changing relationship). amenable to technological “It used to be easy to say that
There is one caveat to the importance of popular fixes, Europeans to tougher you can’t do anything because of
views worldwide—some people are more equal than regulations that might hurt the competitive pressures. You can no
others. Location may explain why customers in the economy, Japanese to voluntary longer argue that it is impossible
developing world—where two-thirds of the world agreements, and Chinese and for business to do this because
lives—are a leading factor for so few North American Indians to solutions that recognise many have.”
(11%) or west European companies (14%). Even for their needs to alleviate poverty. Mark Kramer, Founder of FSG Social Impact
Asia-Pacific businesses, however, only 18% place “It is a very broad range of Advisors
© The Economist Intelligence Unit 2008 15Doing good
Business and the sustainability challenge
mindsets out there.” less active on climate change, they have probably
Going beyond climate change, the variety of views been doing more in the area of financial compliance
is even greater, often arising out of different levels post-Enron. The general reputation of the country’s
of development and state ability. Mr Garrido of GE business sector as a “laggard” on Triple Bottom Line
notes that in Latin America the growth of the middle accounting is, in his words, both true and not true.
class is changing expectations about areas ranging “It is certainly true at the rhetorical level, but if you
from healthcare to water use. Dr James Suzman of De look at the functioning of North American companies,
Beers believes that “it is fairly widely accepted, when there is quite a lot of history of community outreach
operating in Sub-Saharan Africa, that [Adam Smith’s] and concern about how people are treated.” When
invisible hand may be invisible because it isn’t there. he started at MolsonCoors, Mr Alexander found that
It is hard to avoid the need to engage with societal a lot of sustainable behaviour had already been
issues in a progressive way.” Gail Kendall, Director internalised. Many sustainability-related activities
for Group Environmental Affairs at CLP Group, the have “been done by a lot of companies, but just not
Hong Kong-based power company, says the group’s pulled together and labelled as CSR”.
fundamental dilemma is “how to provide energy that is Even in terms of broader benefits that companies
legitimately needed, and at the same time be good on see from the sustainability agenda, the story can
climate change. Even our mainstream environmental be quite different in regional or country-specific
stakeholders agree that there has to be a role for a fuel contexts, according to Mr Kell. For some Chinese
like coal, and that people in countries like India are firms, it is assumed to be a necessary part of wanting
entitled to development.” She adds that local Chinese to operate on a world stage; in Egypt, “businesses see
stakeholders are looking less at emissions and more it as a platform of modernisation, a counterweight” to
on education and an improvement in living standards. those wanting to return society to an earlier time; and
In India, Aditya Birla’s social activities in 3,700 rural in more developed economies it is often adopted by
communities accordingly focus on development, with companies that want to maintain leadership.
programmes addressing issues including education,
health and women’s rights. Regional priorities
As Mr Bickham of Anglo American noted of Britain, How are these differences playing out in corporate
in developed countries environmental stewardship, behaviour? Perhaps because of climate change,
behaving decently to stakeholders and obeying Europe has a reputation of being much more advanced
the law is sufficient to address most concerns on on these issues. Our survey suggests a more complex
sustainability. However, even developed countries picture, with Asia-Pacific companies rating themselves
have their differences. As Mr Menzinger of Swiss highly. There is an impression that foreign companies
Re says, “It shouldn’t matter in theory what your are leading sustainability efforts in the region—most
setting looks like, but it still does.” He remembers members of the China Business Council on Sustainable
a former Swiss Re CEO saying that “being Swiss, Development, for example, are multinationals based
with Swiss characteristics, and having the glaciers in Western countries. Our survey figures indicate,
retreating, could have been one of the factors why however, that even domestic companies in this region
we became alert to climate change so early”. Bart claim to be as active in environmental and social
Alexander, Global VP for Alcohol Policy and Corporate areas as those elsewhere. As Ms Ulrich says of China,
Responsibility at MolsonCoors, believes that although “Sustainability is a major concern here. It is certainly
US companies and regulators have generally been not considered just a Western issue.”
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